Wall Street Banks Offer $3 Billion of CMBS to Extend Sales Surge

Banks from JPMorgan Chase & Co. to UBS AG are marketing $3 billion of commercial-mortgage bonds amid a rush to refinance commercial-property loans.

JPMorgan is working with Deutsche Bank AG, Morgan Stanley and Wells Fargo & Co. to arrange a $1.2 billion deal backed by a Miami mall, according to a person with knowledge of the offering who asked not to be identified because terms aren’t public. UBS and Wells Fargo are set to price a $450 million transaction today linked to 11 Penn Plaza, a Manhattan office tower, a person familiar with that deal said.

Sales of the debt have surged past bank forecasts laid out earlier in the year as borrowers look to lock in low rates before the Federal Reserve pulls back on stimulus measures that have kept borrowing costs hovering at record lows. Banks have arranged about $72.3 billion of securities linked to shopping malls, office buildings and hotels this year, more than double the amount sold in all of 2012, according to data compiled by Bloomberg.

Investors are snapping up the bonds as late payments on commercial mortgages packaged into them decline. The delinquency rate fell 32 basis points to 9.5 percent last month, according to a report from Credit Suisse Group AG analysts. That marks the largest monthly decline on record, according to the New York-based analysts led by Roger Lehman.

Standards Slip

Problems on property loans contained in deals issued after the financial crisis have been rare, with a “handful” of them showing signs of distress, according to Credit Suisse.

Banks retooled commercial-mortgage bond offerings and tightened underwriting standards after lax lending during the boom years in 2006 and 2007 pushed defaults to records. Standards are slipping again as sales soar, the analysts at the Swiss lender said.

“It is concern about deteriorating credit quality that makes us less positive on new and recently issued mezzanine bonds,” they wrote, referring to securities that absorb losses before the top-ranked portions of the deals. Investors are “making a greater differentiation between deals,” they said.

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